At MetLife’s sixth annual benefits symposium in Washington this week, Treasury and Department of Labor officials discussed the difficulties of including annuities in 401(k)s. The two agencies have asked the public for comments through May 3 on including lifetime income solutions in employer plans.
“The translation from the [401(k)] account balance to income stream is something people aren’t good at,” said J. Mark Iwry, senior advisor to Treasury Secretary Timothy Geithner. But lifetime payouts are something people should consider, especially because they “are unrealistic about how long they’ll live.”
A recent MetLife study of 1,300 employees and 1,500 employers found that 44% of the workers would like an annuity in their defined contribution plan, but only 10% of employers were “very interested” in offering one.
“Employers tell us the Pension Protection Act of 2006 and the safe harbor regulations aren’t well-understood by the plan sponsor community,” said Bill Raczko, MetLife senior vice president for U.S. business and marketing. “When they’re thinking of fiduciary duty in regards to choosing an annuity provider, they’re unsure of their role and the liability.”
One alternative Iwry suggested is a deferred annuity that would start as a sort of insurance policy against outliving one’s assets at the age of one’s life expectancy. “It’s a way to protect yourself against the tail risk of longevity,” Iwry said. “An annuity that starts at that age—even if it doesn’t pay anything until you get there—demands less of your account balance now.”